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Profiting from Probate

18th August 2018

There are three types of motivated sellers in the market.  The distressed, the divorced, and the dead.  People in these categories must sell, due to their circumstances.  They do not have the luxury of choice.

In a market such as this one, comparables cannot be relied upon with the same confidence they once used to command.  The market is in a flux.  There’s a perception out there that if you purchase a property now at retail value, it may be worth even less in 12 months’ time.

This environment, coupled with the three categories mentioned above, is the perfect combination for the shrewd investor.

We are closing on our second probate property this week.  Probate is a legal document which grants authority to deal with a deceased person’s assets.

Most probate properties have certain symptoms that come with them, for example there’s that musty smell.  They often come with the benefit of old well-made furniture.  These properties usually require a total gut out; and it can be assumed they do not confirm to any of the current regulations.  You can forget looking at the energy efficiency readings.  Almost always they have short leases.

The more variables you have in a deal the more chance it is a deal.  Sometimes you also have a seller(s) who often wish to cash in on their new found wealth.  Their need to have the money in their bank account outweighs the need to achieve maximum price.

Being a property with a short lease, as well as requiring full refurbishment means most lenders will not touch this type of deal.  The short lease effects the security for the lender.  Most people don’t appreciate a BTL mortgage is given on the basis the property is in a lettable condition.  If this is not the case the mortgage will not be granted.  There are a few lenders who do refurbishment products, they, however, require a minimum lease length.

There is the option of a bridge, however, this needs to be used carefully, as it could destroy the deal, if the exit is not lined up in advance.  The aim of a bridge by its very definition is to take you from one place to another, across a difficult terrain.  You are not supposed to stay on the bridge!

In conclusion, by the very word probate on a property, the chances are you might be staring a deal in the face.

A short lease, these days, this is relatively easily quantifiable in advance.  It needs work, again not a massive issue.  Having this much cash tied up in one deal may be tough for certain buyers.  Yes, bridging is there, however, you need to ensure you have your ducks lined up and the exit in place prior to entering these types of arrangements.

Suresh Vagjiani

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